COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:32/LM/MAR12
(014787)
In the matter between:
Boxer Super Stores (Pty) Ltd Acquiring Firm
And
The Target Firms under the control of Target Firm
Metcash Trading Africa (Pty) Ltd
Panel : Norman Manoim (Presiding Member),
Yasmin Carrim (Tribunal Member)
Andiswa Ndoni (Tribunal Member)
Heard on : 04 July 2012
Order issued on : 04 July 2012
Reasons issued on : 19 July 2012
Reasons for Decision
Approval
[1] On 4 July 2012 the Competition Tribunal (“Tribunal”) unconditionally
approved the large merger between Boxer Super Stores (Pty) Ltd and the
target firms under the control of Metcash Trading Africa (Pty) Ltd. The
reasons for approving the proposed transaction follow below.
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Parties to transaction
[2] The primary acquiring firm is Boxer Super Stores (Pty) Ltd (“Boxer”), a
company incorporated in terms of the company laws of the Republic of
South Africa. Boxer is a wholly owned subsidiary of Boxer Holdings (Pty)
Ltd, which in turn is wholly owned by Pick ‘n Pay Holdings Limited (“Pick ‘n
Pay”).
[3] The primary target firms are the Cofimvaba, Giyani, Hebron, Lusikisiki,
Maclear, Matatiele, and Middleburg Metro Cash and Carry Stores (“the
target firms”). These stores are controlled by Metcash Trading Africa (Pty)
Ltd (“Metcash”), a company incorporated in terms of the company laws of
the Republic of South Africa.
Activities of merging parties
[4] Boxer has four retail divisions, namely Superstores, Build, Super Liquors
and Punch, but for the purposes of this transaction, Boxer’s relevant
activities are those of its Superstores divisions. Stores in this division
operate primarily as retailers of groceries and general merchandise. The
division also operates a few hybrid retail-wholesale stores.
[5] The target firms have historically been wholesalers of groceries and
general merchandise in the towns in which they are located. In recent
years, these stores have been converted into hybrid stores able to
accommodate retail sales.
Proposed transaction and rationale for transaction
[6] The proposed transaction entails Boxer acquiring the target firms from
Metcash as going concerns. Boxer will thus acquire sole ownership and
control of the seven target firms.
[7] According to Boxer, it wishes to enter the market for the wholesale of
groceries and general merchandise products, and the proposed
transaction provides it with such an opportunity.
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[8] From Metcash’s perspective, it is selling its stores in a piece-meal fashion
to ease its current financial difficulties, and to meet its debts in a manner
that mitigates the risk of significant financial losses to its investors. Other
stores are being sold to other buyers.
Relevant markets and impact on competition
[9] In defining the relevant product market the Commission followed the
Tribunal’s decisions in Massmart/Jumbo1 and Masscash/Finro2 where it
was held that wholesale and retail constitute sub-markets in the broader
market for groceries and general merchandise. While dedicated retail and
wholesale outlets do not exert competitive constraints on each other as
their target customers and mode of operation are different, hybrid stores
(i.e. stores with both a retail and a wholesale component) are able to exert
competitive constraints in both sub-markets. In the retail market, this
competitive constraint is limited to the proportion of the hybrid’s sales that
are to retail customers, and likewise for the wholesale market.
[10] Given that Metro has converted its wholesale stores into hybrids, the
Commission assessed each individual target firm to determine the degree
to which it competes in the grocery and general merchandise retail market,
and whether it could be classified as a retail hybrid store. Towards this end
the Commission used its field investigations and the factors that
distinguish retail and wholesale stores, such as the location of the store,
the format of display and pricing, the presence of service departments
such as a bakery, and the revenue split between wholesale and retail
stores. The Commission determined that all the target firms except
Cofimvaba3 could be classified as retail hybrids, i.e. predominately
engaged in retail activities. The Commission concluded that the relevant
markets are:
• the retailing of grocery and general merchandise in Giyani town;
markets are:
• the retailing of grocery and general merchandise in Giyani town;
1 Case number: 39/LM/Jul012 Case number: 04/LM/Jan093 Note that the Commission did not make a determination regarding the Hebron and Maclear Metro
stores because Boxer does not have any presence in those two towns.
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• the retailing of grocery and general merchandise in Middleburg
CBD;
• the retailing of grocery and general merchandise in Cofimvaba
town;
• the retailing of grocery and general merchandise in Lusikisiki town;
• the retailing of grocery and general merchandise in Matatiele town;
and
• the wholesaling of grocery and general merchandise in Cofimvaba
and the towns within a radius of 80-120km of Cofimvaba.
Horizontal Analysis
a. Giyani, Middleburg, Lusikisiki and Matatiele
[11] The Commission found that there is a horizontal overlap in the activities
of the merging parties in Giyani, Middleburg CBD, Lusikisiki and Matatiele.
The merging parties’ combined, post-merger shares in these markets are
30%, 38%, 37% and 21% respectively. However, the merged entity will still
face competition from other national retailers who operate on an
equivalent scale to Boxer and Metro such as Spar, Shoprite and Rhino,
who all have market shares in the 15-25% band. In addition, the merged
entity will also face competition from a number of smaller retailers. The
Commission thus found that consumers will have viable alternatives if the
merged entity increases its prices. Furthermore, the availability of other
retailers in a market where retailers compete for customers based on
price, affords consumers in these towns a certain degree of countervailing
power. The Commission thus concluded that the merger is unlikely to lead
to a substantial lessening or prevention of competition in these markets.
b. Cofimvaba
[12] In Cofimvaba there is a limited overlap between Metro and Boxer’s
activities in the retail of groceries and general merchandise market
because the Metro store, although classified as a wholesale hybrid, has
minimal retail activities. This Metro is, however, predominately a
wholesaler. The store has a warehouse design, bulk packaging and
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pricing, no service departments aimed at retail customers, and it is located
some distance from the CBD and importantly the taxi rank. Boxer has two
retail stores in Cofimvaba, both with the competitive advantage of being
located in close proximity to a taxi rank. 4 The merged entity’s combined,
post-merger market share is 54%, and it will only face competition from
four independent retailers, namely Buzi (16%), Save Rite (6%), Evergreen
(16%) and Eastern Cash and Carry (8%). Although the Cofimvaba Metro
has no service departments, thus lacking a key characteristic to compete
as a retailer, the Commission argued that it could become an effective
retail competitor given its strategic direction. The Commission was
therefore concerned that the transaction may be removing a potential
effective competitor in the retail market.5
[13] Furthermore, these independent retailers source most of their grocery
products from Metro. However, since December 2011, these retailers have
started switching to alternative suppliers located in Queenstown because
of stock shortages at the Cofimvaba Metro. 6 The Commission was
concerned that if, as the merging parties submitted, the Metro is converted
into a hardware store post-merger, 7 these retailers will be forced to source
all their stock from wholesalers in Queenstown, which will place upward
pressure on their prices and adversely affect their ability to remain
competitive. The Commission was therefore concerned that the
transaction would result in the removal of an effective supplier for Boxer’s
competitors in Cofimvaba.8
[14] The Commission determined that the counterfactual, however, is that the
Cofimvaba Metro store will cease trading altogether, and the independent
retailers will still be forced to source their stock from wholesalers in
Queenstown. The Metro store is a failing firm. Metro is in financial distress
Queenstown. The Metro store is a failing firm. Metro is in financial distress
and Metcash’s strategic documents indicated that all unsold stores will be
closed imminently.9 The Metcash representative confirmed at the hearing
4 Commission’s Competition Report, page 475 Transcript, page 36 Commission’s Competition Report, page 497 Commission’s Competition Report, page 50; Trancript, page 88 Transcript, page 39 Commission Competition Report, pages 51-52
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that all unsold stores will be closed by the end of July 2012. 10 The merging
parties submitted that the Cofimvaba store is not commercially viable as a
wholesaler. It has incurred losses in February, March and April this year of
R10 000, R86 000 and R64 000 respectively. The merging parties further
submitted that there are no other buyers interested in purchasing the
Cofimvaba store.11 The Commission reasoned that if Metcash could have
found an alternative purchaser for this store, they would have since they
have been aware of the Commission’s concerns regarding this store for
some time.12 Furthermore, the most likely alternative purchaser, Massmart,
evinced no interest in purchasing the store when the Commission
approached them.13 The Commission thus accepted that absent the
merger, the Cofimvaba Metro store will be closed down. 14 Accordingly, the
Commission concluded that the conversion of the Metro into a hardware
store will not result in a significant lessening of competition.
[15] We accept the failing firm defence15 advanced at the hearing by the
Commission16 because the Cofimvaba Metro is incurring losses, will be
closed down at the end of July if it is not sold to Boxer and there are no
alternative purchasers. We thus agree with the Commission that the
proposed transaction is unlikely to substantially prevent or lessen
competition in the markets.
Public Interest
[16] The merging parties submitted that the proposed transaction will have no
adverse effects on employment since they do not foresee any
retrenchments as a result of the merger. 17 No other public interest issues
arise due to this transaction.
10 Transcript, page 1111 Transcript, pages 8-9, 1112 Commission’s Competition Report, page 5213 ibid14 ibid, page 1115 This test is set out in the our decision in Iscor Ltd v Saldanha Steel (Pty) Ltd, case number:
67/LM/Dec0116 Transcript, page 517See pages 38 and 56 of the Record
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Conclusion
[17] Having regard to the facts above, we find that the proposed merger is
unlikely to substantially lessen or prevent competition in any relevant
markets. Furthermore, the proposed transaction raises no public interest
concerns. Accordingly, we approve the merger unconditionally.
____________________ 19 July 2012
Norman Manoim DATE
Y Carrim and A Ndoni concurring
Tribunal Researcher: Elizabeth Preston-Whyte
For the merging parties: Anthony Norton and Mfundo Ngobese of Nortons
Inc
For the Commission: Themba Mahlangu and Grace Mohamed
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